Model Portfolio & SMA Strategists Showcase - Flipbook - Page 17
SMAs & MODEL PORTFOLIOS
and disclosed before the allocation is
recommended, not discovered when a
client actually requests a redemption.
Valuation methodology is the second
consideration. Public securities price
continuously and transparently. Privatemarkets holdings are typically valued
periodically using appraisal-based or
model-based methods that can lag
actual economic reality, sometimes
considerably, especially during fastmoving market conditions. A model
portfolio’s reported performance
during a period of market stress may
understate real-time volatility in its
private-markets sleeve simply because
that sleeve’s valuation hasn’t caught
up yet, which matters directly for the
performance-skepticism discipline
argued for later in this guide (p. 29).
The third consideration is the
J-curve, the tendency for private
investments, particularly in categories
like private equity, to show negative
or flat returns in their early years as
capital gets deployed and fees are
charged, before (if the strategy works)
returns accelerate in later years. A
model portfolio that recently added a
private-markets sleeve may show a
performance drag attributable entirely
to this early-years pattern rather than
to poor manager selection.
Distinguishing between the two
requires knowing the sleeve’s actual
vintage and understanding what a
normal J-curve pattern looks like for
that specific asset category, rather
than judging the allocation’s success
on the same near-term timeline used
for public-market holdings.
The next chapter turns to the layer that
sits on top of the TAMP relationship in
most practices: the model marketplace
itself, and what “model-only” delivery
actually asks of an advisor who
chooses it.
Model Marketplaces &
Model-Only Portfolios
O
f the delivery mechanisms
introduced earlier (pp. 7–8),
model-only is the lightest-weight
and, on the surface, the simplest.
A manager publishes an allocation.
The advisor (often through a TAMP)
implements it. No individual account
management, no manager-level trading
authority, just a published recipe that
gets replicated across client accounts.
That simplicity is real, but it comes
with an operational catch that’s easy to
underestimate until it actually causes a
problem.
HOW A MODEL
MARKETPLACE WORKS
A model marketplace, the kind offered
directly by large asset managers or
aggregated across dozens of providers
by platforms like Envestnet, Orion, or
Morningstar’s own dashboard tools,
gives advisors a searchable library of
published model portfolios, typically
screenable by asset class, risk level,
strategy type, and the underlying
vehicle mix (funds, ETFs, or a blend).
An advisor browses, selects a model
that fits a client’s mandate, and
the marketplace platform handles
matching that allocation to actual
holdings inside the client’s account.
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The appeal is straightforward. There’s
no need to build allocation logic from
scratch, no need to conduct securitylevel research on every position, and,
because many marketplace models are
built predominantly from a provider’s
own proprietary funds, often no direct
cost to the advisor at all. The provider
is compensated through the expense
ratios embedded in the underlying
holdings rather than a separate
advisory fee on the model itself.
THE CATCH: NOBODY’S WATCHING
THE ACCOUNT BUT YOU
Because model-only delivery involves
no manager trading authority, the
manager’s job ends the moment
the allocation is published. If the
WATCH OUT FOR
Drift is silent
Nothing alerts a client when their modelonly account drifts from its target. No
warning light, no statement flag, just a
portfolio that quietly stops matching the
strategy it was sold as, discovered only
at the next review. The responsibility for
catching this sits with the advisor or their
TAMP, full stop.
